Correlation Between Boliden AB and Iluka Resources

Can any of the company-specific risk be diversified away by investing in both Boliden AB and Iluka Resources at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Boliden AB and Iluka Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Boliden AB ADR and Iluka Resources Ltd, you can compare the effects of market volatilities on Boliden AB and Iluka Resources and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Boliden AB with a short position of Iluka Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boliden AB and Iluka Resources.

Diversification Opportunities for Boliden AB and Iluka Resources

0.73

Correlation Coefficient

Boliden AB  Iluka Resources

Poor diversification

The 3 months correlation between Boliden and Iluka is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Boliden AB ADR and Iluka Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iluka Resources and Boliden AB is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Boliden AB ADR are associated (or correlated) with Iluka Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iluka Resources has no effect on the direction of Boliden AB i.e., Boliden AB and Iluka Resources go up and down completely randomly.

Pair Corralation between Boliden AB and Iluka Resources

Assuming the 90 days horizon Boliden AB ADR is expected to generate 0.72 times more return on investment than Iluka Resources. However, Boliden AB ADR is 1.38 times less risky than Iluka Resources. It trades about 0.03 of its potential returns per unit of risk. Iluka Resources Ltd is currently generating about -0.05 per unit of risk. If you would invest  5,793  in Boliden AB ADR on September 15, 2024 and sell it today you would earn a total of  173.00  from holding Boliden AB ADR or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Boliden AB ADR  vs.  Iluka Resources Ltd

Boliden AB ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Boliden AB ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Boliden AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Boliden AB and Iluka Resources

The main advantage of trading using opposite Boliden AB and Iluka Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boliden AB position performs unexpectedly, Iluka Resources can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Iluka Resources will offset losses from the drop in Iluka Resources' long position.

The idea behind Boliden AB ADR and Iluka Resources Ltd pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.